There is No Free Lunch-The High Cost of Government Aid By Charles Hagerman

Why is it that education has become so expensive? When I attended college more than 30 years ago, I paid for college as I went. My cost was about $5,000 dollars a year and I went for a total of 7 years. I took out no loans and received less than 4,000 in total aid over that time period.

What has happened since then to drive up the cost of education? I would say very little. What has gone up is not the cost, but the price. The market is made up of millions of people making choices, and these choices affect any number of things, one of which, is price. Price is a very important piece of information, and it is what will drive a supply of lumber to be shipped to assist hurricane damage instead of where it was planned to be shipped. As with any actor in the market, government actions also affect price.What the government has done by ensuring loans is to support the price of the education set by the various colleges. Even worse, the school administers these loans. They know that the student’s costs to attend is $5,000 dollars a year, but their loan is for $8,000 dollars a year. The school knows that it is leaving $3,000 dollars on the table. So, as any other actor in the market does, it raises its price knowing full well that the customer can still afford the product. This would be bad enough, but our government can be easily influenced by money. Colleges can lobby Congress to increase the amounts that they will make loans to students. Colleges are then free to raise their prices yet again, safe in the knowledge that their students can afford these higher prices. Repeating this cycle over time and college is now unattainable for most students without taking out loans.It is at this point that we get to the unseen effects of the government’s philanthropy. The government is poised to make $66 billion dollars of profit on the $454 billion in loans it made from 2007 through 2012. That is a 14 percent profit for that six-year period. And since most of those payments are only the interest, the principle remains to continuously generate more government income. Since the government set the rules on these loans, the students are locked in. They can’t renegotiate and they can’t declare bankruptcy. They pay and pay and pay.I don’t think that the government set out to drive the price of college up with these loans. I don’t think that the government had planned to get rich from the interests on these loans. I think this started to be just what it was expected to be, a way to help more people go to college. And as noble an idea as that is, we cannot escape the fact that like so many noble ideas expressed through government that the effects of those ideas are often ignoble. They are often unseen. They are often far worse than the problem they were intended to solve. Nothing can be done in a vacuum.

Charles Hagerman is married with two daughters. He spend a great deal of time listening to music, and watching tv and movies. Most conversations with him will feature many movie quotes, and him breaking out into song. Having taught himself to pay guitar using the internet, he plays guitar at his church. Additionally, Charles is a self taught programmer, studies economics and various languages using the internet. He is a tireless defender of liberty.